Ghana, a country on the West Coast of Africa, is one of the fastest growing economies on the continent. The country’s economy is dominated by agriculture with 55 per cent or more of the population employed as smallholder farmers with, in turn, a significant share of their produce going to waste because of post-harvest losses.
In an effort to enhance growth and development in this sector, the Government of Ghana, led by the Ministry of Finance, is operationalizing the Ghana Commodity Exchange (GCX).
As a short background, the GCX project was launched in June 2015, where feasibility studies were carried out to determine the suitability of the Exchange across different parameters, studying the regulatory environment, the various commodities that could and should be traded and also to gather the necessary inputs and feedback from the ecosystem stakeholders and the market in general; all of which are necessary before such an important project is fully realised.
In addition, trips were undertaken to various commodity exchanges around the globe to understudy how the various designs work and how to adapt these to the Ghanaian environment. This formed part of extensive capacity building efforts for the staff of GCX, who in turn performed training and capacity building for various stakeholder communities.
Having successfully completed the design stage of the GCX Project, the Ghana Commodity Exchange was registered in October 2017 as a private company limited by shares, structured as a Public Private Partnership, with the government of Ghana currently the sole shareholder.
A new management team were recruited to the Exchange in January 2018 and were tasked to fully implement the design to establish a fully functional and operational GCX.
Since then GCX has commenced the acquisition of the required infrastructure to support a modern commodity exchange (i.e. warehousing, stock management and quality control systems, electronic trading platform, business processes, central depository, clearing and settlement process, hiring of technical and functional staff, recruitment of members, finalization of exchange trading rules, capacity building and training of market actors and stakeholders, finalization of commodity grades and standards, selection of commodities to be traded on the exchange etc.).
GCX has completed the establishment of these systems, and with all the systems established, GCX will officially be inaugurated before the end of the year to commence trade focusing on capturing the Ghana market initially (2018- 2019), then the West African market, where there is already informal trading going on with neighbouring countries.
GCX operates by linking smallholder farmers and other value chain actors to markets and opportunities, including providing accurate and reliable information, new methods of, and access to, secured storage, and increased penetration of credit and agricultural financing.
Additionally, GCX seeks to increase Ghana’s national and international trade competitiveness by building economies of scale, deepening capital markets by creating greater liquidity, and improving transparency in markets.
GCX organised a pilot trade earlier this year to demonstrate the feasibility of the spot trade system which proved to be a success. Farmers who sold received a premium, with their operational risks hedged.
The need for an exchange
The Ghana Commodity Exchange will serve a vital role in the economy and Ghana in the years to come.
The purpose of the commodity exchange is to provide a centralized marketplace where commodity producers—the commercials—can sell their commodities to those who want to use them for manufacturing or consumption.
This process increases business survival among farmers, and one of the pivotal roles of the Exchange is to continuously make sure there's a buyer for every seller, provided their price expectations meet.
Further reasons why the commodity exchange is necessary and it cannot be operational quickly enough are outlined below.
In Ghana, farmers do not own properties that can be leveraged as collateral for loans from financial institutions. They are forced to sell their commodities immediately after harvest, often at lower prices as they lack access to credit to meet their financing needs.
The Ghana Commodity Exchange as part of its operations is incorporating the Warehouse receipt financing which will address this challenge to farmers. The farmer can use the receipt as collateral to access loans from financial institutions, while also enjoying the advantage of selling these commodities in the market when prices might be higher.
For financial institutions, warehouse receipt financing help reduces credit risk in lending to farmers. In view of this, all actors in the agriculture value chain become a part of the financial inclusion agenda.
As Ghana has incorporated the Millennium Development Goal of eradicating poverty and hunger into its national development framework, the Ghana Commodity Exchange as earlier noted will help to improve living in the rural communities by empowering smallholder farmers through financial inclusion, and as part of its operation will not only reduce poverty drastically but also ensure that quality of food is premium through the testing of all commodities that are traded through the Exchange.
The health benefits inferably cannot be overemphasized as healthy commodities churned through the Exchange will result in healthy meals for all households.
Improve Agricultural productivity
With the Government of Ghana committed to making agriculture the source of Ghana's economic and social development with its focus being to modernize agriculture, improve production efficiency, achieve food security, and profitability for farmers, all aimed at significantly increasing agricultural productivity, there definitely is the need for a commodity exchange and the time is now! With farmers’ ability to have access to credit facilities using the warehouse receipt as an instrument, small-holder farmers can now invest in the use of more improved and sophisticated methods of farming which will, in turn, reduce farm losses.
Post-harvest losses will be drastically reduced if not eradicated because of storage facilities that will be provided by the Exchange through the operations of the various GCX certified warehouses located near production areas. Farmers will no longer sell at the farm gate when there is glut just to get rid of their commodities. Indeed, the farmers time is now!
The Ghana Commodity Exchange offers tremendous opportunities for job creation. Folks in the communities will have jobs at their doorsteps through the operations of the Exchange; for example, aggregators who mop up commodities for the warehouses for subsequent trades.
In fact, because of the nature of the ecosystem, the Exchange, directly and indirectly, provides opportunities in other areas such as telecoms which will be made use of through the daily dissemination of prices and other relevant information to members of the exchange.
The Exchange infrastructure makes use of Information Technology, opening up new avenues for these services. The movement of commodities to the various delivery centres in production areas and the pickup of commodities after the trade will result in more business for those in the transportation industry.
Farming in itself will become an attractive business since most challenges associated with farming that make it unattractive will be curtailed with the introduction of the commodity exchange; with a lot more youth going into agriculture, it will reduce the incidence of rising unemployment.
The life of the average Ghanaian living in rural areas will improve considerably as most of them are smallholder farmers who will be empowered through financial inclusion.
Investors will be attracted to invest in areas such as the drying of commodities among others because of the presence of the Ghana Commodity Exchange in these areas.
With the various communities experiencing these changes, there will be an improvement in the provision of social amenities due to the level of activity that will pick up in such areas.
The commodity exchange will spark up a whole new curriculum in our universities and secondary schools. Research and feasibility studies in agriculture to unearth new and better methods of engaging in the business of farming and commodity trading will become an interesting study to undertake.
Agriculture will become more attractive to the youth right from our secondary schools due to the advent of modern and technological trading systems in the area of agriculture as a result of the Commodity Exchange.
It is considered a key driver and the way forward for the structural transformation of African economies. Put differently, regional integration in general is not only desirable, it is necessary if Africa is to reduce poverty, to industrialize, develop intra-regional trade, strengthen capacities to benefit from globalisation, reduce vulnerability in fluctuating overseas markets, mobilise and maximise scarce resources of capital and skills, and achieve an effective African unity, both politically and economically.
The Ghana Commodity Exchange is here to transform African economies by creating prosperity for all in the commodity value chains, and to become a regional and global trading hub for all commodities GCX has the goal of supporting farmers and helping them develop their markets and income.
GCX is the transformation to Ghana and Africa’s agriculture by creating more bargaining power for smallholder farmers across the continent once other countries are fully on board, including the harmonized provision of accurate and reliable information across borders, new methods and access to secure storage, and increased penetration of credit and agricultural financing.
In this capacity, the Exchange offers value chain actors the opportunities to achieve the level of sustainable and equitable growth that will elevate Ghana and West Africa’s economy to the world stage.
In conclusion, the benefits to be derived from the operationalization of the Ghana Commodity Exchange in the areas of finance, health, food & agriculture, employment, rural development, education, rural integration and all facets of the economy is enormous and cannot be overemphasized.
The game changer of Ghana and Africa’s economy is hereby ‘connecting markets, connecting people and providing opportunities.’ The Ghana Commodity Exchange is here!